Wheat Letter - December 2, 2010
USW is the industry’s market development organization working in more than 100 countries on behalf of America's wheat producers. The activities of USW are made possible by producer checkoff dollars managed by 19 state wheat commissions and through cost-share funding provided by USDA’s Foreign Agricultural Service. For more information, visit www.uswheat.org or contact your state wheat commission. Original articles from Wheat Letter may be reprinted without permission; source attribution is requested.
In This Issue:
1. IGC Forecasts Increased Plantings for 2011/12 Crop
2. Spotlight on Wheat in the Heartland: Colorado, Nebraska and Wyoming
3. A Few Steps Forward, One Step Back
4. Wheat Buyers Well-Positioned for River Closure
5. Canadian Choice
6. Wheat Industry News
Online Edition: Wheat Letter – December 2, 2010 (http://bit.ly/enIm4T)
PDF Edition: Wheat Letter - December 2, 2010.pdf
1. IGC Forecasts Increased Plantings for 2011/12 Crop
by Chad Weigand, USW Market Analyst
The surge in wheat prices this year will lead to increased global wheat production area in 2011, according to the International Grains Council (IGC). With wheat prices climbing nearly 20 percent* from a year ago, the IGC expects total wheat production area to increase by four percent, from 216 million hectares (MH) (534 million acres) in 2010 to 224 MH (554 million acres) in 2011. With the exception of Russia, the IGC anticipates increased winter wheat plantings for all major exporters.
Russia will continue to feel the effects of this year’s drought moving into 2011. The drought caused a late start to the planting season, and winter wheat plantings will be down this year as a result. The IGC estimates Russian winter wheat seeding will fall to 11.5 MH (28 million acres), approximately 14 percent below last year’s planted area. The reduction in winter wheat sowing could lead to further export restrictions if spring sowing does not increase. Earlier this month, the Russian Grain Union stated that spring grain sowings would have to increase by at least 2.5 MH (6 million acres) to ensure domestic supplies are adequate in the upcoming year.
“Even though spring wheat prices in Russia are high, it is likely that some potential spring wheat production area will be lost to sunflower,” said Valentina Shustova, USW Moscow Office Director and Marketing Specialist. “Sunflower is the most profitable crop for Russian producers this year.”
Don Schieber, a wheat producer from Ponca City, OK, and current USW Chairman, learned of another concern about spring wheat from a Russian official on a recent visit.
“I asked him if spring wheat could make up for some of the lost production area for winter wheat,” Schieber said. “His answer was simple: ‘Not enough seed.’”
IGC currently forecasts all-wheat production area in Canada to reach 9.5 MH (24 million acres), a 17-percent increase from 2010, but still two percent below the five-year average. Acreage dedicated to spring wheat, which accounts for more than 75 percent of Canadian production, has steadily declined over the past 20 years. Agri-Food Canada’s latest Market Outlook Report stated that spring wheat production area has fallen by 41 percent since 1990, replaced by other crops, especially canola. Last year, Canada sowed 6.6 MH (16 million acres) of spring wheat, eight percent below the five-year average, while planting a record 6.8 MH (17 million acres) of canola.
With European Union (EU) ending stocks falling to their lowest level since 1983/84 (10.7 MMT or 393 million bushels), the IGC forecasts EU wheat plantings to be up this year in order to rebuild stocks. The IGC projects a one percent increase in total wheat production area, to 26.2 MH (65 million acres). Additionally, IGC expects a four percent increase in common wheat area for the EU’s largest wheat producer, France, due to favorable planting conditions.
U.S. winter wheat plantings will increase this year, rebounding from the 97-year low planted last year. IGC currently pegs U.S. winter wheat seeding at 17.8 MH (44 million acres), an 18-percent increase from last year and three percent greater than the five-year average. Justin Gilpin, of the Kansas Wheat Commission, expects Kansas seeded area to reach 9.5 million acres (3.8 MH), a 10 percent increase from last year. However, Gilpin warns that abandoned acres might increase if conditions do not improve. The U.S. Department of Agriculture (USDA) currently rates winter wheat conditions at 47 percent good to excellent, down from 64 percent last year.
With increased plantings and 2010/11 carryover stocks projected at 23.1 MMT (849 million bushels), 43 percent above the five-year average, the U.S. remains well positioned to fulfill import demand and compensate for any possible shortfalls in the 2011/12 crop year.
*Gulf HRW FOB
2. Spotlight on Wheat in the Heartland: Colorado, Nebraska and Wyoming
by Julia Debes, USW Communications Specialist
Editor’s Note: The generous financial support from U.S. wheat producer check-off dollars managed by 19 state wheat commissions and cost-share funding provided by USDA’s Foreign Agricultural Service ensure that USW has the resources needed to help overseas buyers understand the reliability and functional benefits of U.S. milling wheat. This is the third in a series of articles focusing on USW member state wheat commissions.
In the U.S. plains, the area centered on the corners of Colorado, Nebraska and Wyoming forms one of the top winter wheat producing areas in the United States.
According to the USDA’s National Agricultural Statistics Service, farmers in these three states harvested more than 3 million acres (1.2 MH) of winter wheat in 2009, with Colorado and Nebraska ranked seventh and ninth, respectively, in total wheat production. Hard red winter (HRW) wheat dominates production, while hard white (HW) and hard red spring (HRS) are also grown in limited quantities.
The Central Plains states provide good growing conditions for HRW wheat. The cooler temperatures at higher elevations and arid climate are ideally suited for the crop.
Dan Anderson is a third generation farmer in Haxtun, CO, in the northeastern corner of the state. He farms about 9,500 acres (3,845 hectares) with his brother, including about 2,000 acres (809 hectares) of HRW and some certified HW wheat grown under contract for ConAgra Foods, one of the nation’s largest food companies.
Anderson explained that the arid climate provides both opportunity and challenges for HRW production. For example, annual rainfall averages between 13 and 23 inches (33 to 58 centimeters) depending on the area, so emerging plants sometimes do not get enough moisture to establish a good stand before the winter freeze.
“Colorado is ideally located in an environment that keeps some of the production problems — like disease and insects — out of our neighborhood,” Anderson said. “But getting the right amount of rain at the right time makes a world of difference.”
Dan Hughes agreed that timely rainfall is critical for a successful crop in his area. Hughes, his wife and two adult children farm between 10,000 and 11,000 acres (4,047 and 4,452 hectares) in Venango, NE, in the southwest corner, producing HRW, HW, corn, millet, dry beans and other crops. Hughes represents the Nebraska Wheat Board on the USW Board of Directors.
“The biggest challenge is dealing with what Mother Nature gives you,” Hughes said. “Rain, hail, wind — it is completely out of your control. Farming here is not for the faint of heart.”
Even with weather challenges, advancements in agricultural techniques are helping farmers increase wheat yields and improve quality. For example, increased adoption of no-till practices is helping wheat producers maintain topsoil moisture by leaving stubble in the fields.
“Everyone is parking their tillage equipment,” Hughes said. “The no-till movement has almost been a revolution.”
However, wheat is not the only crop that is benefiting from new technology in the Central Plains.
Hughes explained that his family planted half its farm to wheat 20 years ago. Today, that number is down to 25 percent, or about 3,000 acres (1,214 hectares). Wheat production in his area is shrinking steadily due to increased competition from other crops with higher profit potential.
In agreement, Anderson said the development of dryland and drought-resistant varieties of corn and soybeans encroaches on land that previously was ideal only for wheat production.
Wyoming is an exception. Keith Kennedy, executive director of the Wyoming Wheat Marketing Commission, explained restrictions on water usage in Wyoming are forcing farmers away from water-intensive row crops and back to wheat production.
Combined with the development of new wheat varieties and the expiration of the Conservation Reserve Program (CRP), Kennedy expects additional land will be available for wheat production in the future.
“Areas farmed in the 1930s and 1950s that were enrolled in CRP or are currently used for rangeland will likely move back into wheat,” Kennedy said.
In fact, Kennedy explained that on-farm storage is increasing because supply chain infrastructure that had adjusted to lower amounts of wheat production in the state is now short on storage.
With wheat to sell and a centralized location, producers in all three Central Plains states have export options out of both the Gulf of Mexico and the Pacific Northwest. According to the Colorado Wheat Administrative Committee (CWAC), more than 80 percent of Colorado wheat production is exported.
However, getting wheat to the ports can be difficult. Limited competition between fewer transportation providers results in increased prices for both truck and rail transportation. As a result, Anderson explained, smaller elevators may work together to form required unit trains or opt to truck wheat to ports.
Personal Investment in Research
Yet, producers have a financial stake in ensuring their customers receive the best quality wheat possible. The Central Plains states utilize agricultural experiment stations and wheat breeding programs through Colorado State University, the University of Nebraska and University of Wyoming to improve quality and increase yields for winter wheat production.
For example, Colorado State University (CSU) released the first variety resistant to Russian wheat aphids in the United States in 1994. Today, CSU continues to develop new varieties with drought and disease resistance in addition to increased yield and quality potential.
Anderson’s pride in his state’s initiative was evident when he said, “The wheat breeding program at CSU has one of the best wheat breeding efforts with some of the most tremendous varieties in the pipeline.”
In addition to wheat research, Colorado has a sophisticated system for marketing new varieties. The Colorado Wheat Research Foundation takes ownership of lines, licenses and markets them and collects royalties that fund additional wheat research. In this way, wheat research at CSU is funded both by assessments paid by producers and royalties on the successful varieties it produces.
Wyoming also benefits from wheat research in Colorado and Nebraska. Kennedy explained the state’s agricultural experiment station works with other wheat researchers to develop wheat varieties that may be more appropriate for Wyoming’s climate or conditions.
Research in the Central Plains states is also encouraging producers to increase HW production. While most producers, like Anderson and Hughes, grow HW wheat on a contract basis, there is increasing hope for more exportable supplies.
“We are looking at what we can do to increase HW wheat production,” Kennedy said. “We are currently conducting a feasibility study to determine how to increase the amount of production needed to begin supplying overseas markets.”
HRW producers are also looking to the future and the need for improved genetics to regain competiveness with other crops like corn and soybeans. With private companies re-starting wheat breeding programs, Anderson said he is cautiously optimistic.
“Wheat breeding programs are going to change what wheat production looks like,” Anderson said. “Producers have contributed a lot to our public breeding programs, and I hope the wheat industry will stay committed to protecting that investment in future public-private partnerships.”
Hughes is confident that future improvements to wheat genetics will only enhance the quality and yield of HRW.
“I raise wheat to feed my family too,” he said. “We raise a quality product and are committed to seeing it stays that way and that our customers get what they want.”
No matter the challenges with transportation or weather or the opportunities with no-till farming and improved genetics, wheat producers in Colorado, Nebraska and Wyoming are committed to continue doing what they do best — grow the food that feeds the world.
“We work hard at what we do, and we take a lot of pride in being involved in the wheat industry,” Anderson said. “Come by the farm and see us someday — we’re always open to learning something new.”
3. A Few Steps Forward, One Step Back
by Shannon Schlecht, USW Director of Policy
Work to remove trade barriers with an eye to benefitting both U.S. wheat producers and their overseas customers is an on-going effort. Here is an update on several recent steps taken.
Last week, over 20 World Trade Organization (WTO) member countries, including the United States, agreed to more intense Doha Round negotiations beginning in January 2011. The ambitious goal is a draft text covering all but the most sensitive topic areas by April 2011. Discussions on the remaining issues would occur over the following months aiming at a final agreement by June 2011 and a signed agreement by the December 2011 ministerial conference. The timeline is aggressive, but many leaders fear that failure to strike a deal in 2011, the tenth year of debate, would effectively kill negotiations until 2013 (due to other events in member countries). Such a delay would seriously dim hopes for an eventual agreement.
The TransPacific Partnership (TPP) negotiations continue to move forward and attract attention from several countries. Malaysia joined the negotiations and many other countries conducted discussions during the November 2010 Asian Pacific Economic Cooperation (APEC) meetings in Japan. Japan, Indonesia, the Philippines and other wheat importing countries have also expressed interest in joining the talks.
The United States and Panama signed a Tax Information Exchange Act on Nov. 30, creating financial transparency that should help bring the U.S.-Panama free trade agreement (FTA) closer to ratification. Panama also ratified the eight International Labor Organization (ILO) accords and the umbrella group of Panama's labor unions endorsed the measures.
Unfortunately, little has changed on the pending U.S.-Colombia FTA, but work continues on outstanding issues to gain support for passage. This agreement is critical to U.S. wheat producers and holds potential benefits to Colombian flour millers who want to maintain diversity in their wheat supply. The agreement would remove tariffs on many U.S. exports, including wheat, and make permanent Colombia's duty-free access to the U.S. market.
A Step Back
The inability to reach an agreement on the U.S.-Korea bilateral trade agreement was a step backward for U.S. wheat producers and their Korean customers. U.S. political rhetoric portrayed the missed deadline as a failed litmus test of the Obama Administration’s ability to move U.S. trade policy in a positive direction. Some hope remains, however, as negotiators continue meeting this week to resolve outstanding issues.
At a recent meeting, a government official representing a pending FTA partner with the United States said time is running out to ratify the agreement.
"My country has done everything to make sure we are ready for this bus to depart,” the official said. “Now we all have a ticket and it is time to go."
The U.S. wheat industry believes the same can be said about successfully negotiating the Doha Round, ratifying the other pending FTAs and eventually implementing the TPP. Forward motion on trade is the stimulus (that would not add to the U.S. deficit) that is so desperately needed to increase economic opportunity in the United States and abroad. It is indeed time to go.
4. Wheat Buyers Well-Positioned for River Closure
The U.S. Army Corps of Engineers announced this week that the extended navigation lock closure of the Columbia-Snake River System (CSRS) for major repair and maintenance work would begin as scheduled on Dec. 10, 2010. While barge traffic above The Dalles will stop for up to 16 weeks, wheat and other commodities will continue to move to Pacific Northwest (PNW) ports via rail and truck.
There is every indication that U.S. wheat buyers have prepared well to work through any issues created by the river system closure.
“We took this situation seriously and tried to do everything necessary to help our customers,” said Vince Peterson, USW Vice President of Overseas Operations.
A review of commercial sales of wheat sales to markets traditionally taking wheat from the Pacific Northwest suggests that those buyers have responded to our input. For example, sales of soft white (SW) and club wheat so far in marketing year 2010/11 are 25 percent more than at the same time in 2009/10. Total sales to North and South Asian markets in 2010/11 compared to last year are up 25 percent and 37 percent respectively.
As USW expected, exporters are doing everything possible to keep the wheat flowing without major interruptions. Yet unexpected upside demand for U.S. wheat following the Russian grain export ban and sustained overseas demand for U.S. soybeans is challenging the supply chain. Looking ahead to the rest of 2010/11, PNW exporters likely will continue operating at or near capacity even after the CSRS opens again in March 2011. Given that situation, USW will stay focused on helping its customers analyze and adjust their expected wheat needs and logistical capabilities during and after the closure.
5. Canadian Choices
Elections are underway in western Canada for some of the directorships of the Canadian Wheat Board. We can't help but wonder whether western Canadian wheat producers might choose some more directors who in turn want to give real economic choice back to the producers; a choice of when, where, and to whom to market their own wheat and barley.
Here at USW we've been concerned at the gradual decline in wheat acreage as economic returns to corn and soybeans have outpaced wheat and driven more producers, especially in the eastern and northern parts of our wheat country, to plant those crops instead of wheat. Interestingly, western Canada's wheat area has been declining even faster, giving way to more canola and specialty crops. Those crops also give producers many more marketing options than milling wheat and malting barley, where their only legal market is the CWB.
Recent analyses continue to show that northern U.S. producers receive considerably more money through our open marketing system than their cross-border cousins are able to earn from very similar wheat. The stated purpose of the CWB is to maximize returns to western Canadian wheat and barley producers, yet they are apparently failing to do so. Meanwhile, the WTO Doha Development Round of negotiations is showing some new signs of life, with a push underway to complete the negotiations in 2011. The draft language of that potential agreement would ban the monopoly practices of the CWB and eliminate its ability to borrow funds at government rates. The CWB would have to either become a much different animal, perhaps running a voluntary rather than mandatory pricing pool, or cease to exist.
Perhaps it is no accident that in Ontario, where producers are free of the CWB's iron grip, wheat area today stands at its ten-year average, even though the province receives enough moisture to grow corn and soybeans. Could it be that sustained wheat acreage in Ontario is at least partly due to the fact that producers can make their own marketing decisions? We think that is certainly part of the story. Western Canadian producers can look south to see higher prices, east within Canada to see sustained wheat production, and into their own canola returns to see the success of open marketing.
Whether or not western Canadian wheat producers "choose choice" in this election, we are confident that the dinosaur that is the CWB will before long, one way or another, go extinct.
6. Wheat Industry News
- Kansas City Board of Trade Proposed Changes to its HRW futures contracts in a stated attempt to improve convergence, including increased storage rates, adding minimum protein requirements and lower vomitoxin tolerance levels for HRW delivered against futures contracts beginning with the September 2011 contract. The Commodity Futures Trading Commission must approve the changes. USW hopes the changes help the producers our organization represents and our overseas customers improve HRW risk management. Read an analysis of the changes at http://bit.ly/g7GcOZ.
- USDA Predicts Record High Farm Exports. In the FY 2011 “Outlook for U.S. Agricultural Trade” report, USDA’s Economic Research Service predicts farm exports will set record highs. “Wheat exports are up by $1.7 billion to $9.8 billion. The combination of increased global demand and tight exportable supplies in other exporting countries, particularly Russia, provides opportunities for U.S. export expansion.” Read the full report at http://bit.ly/gufJyq.
- Virginia Tech and Monsanto Announce Breeding Collaboration. Virginia Polytechnic Institute and State University (Virginia Tech) and Monsanto have signed a collaborative agreement they say will help both parties improve their wheat breeding programs and generate improved varieties. Initially, the agreement will focus on improving yield and increasing resistance to Fusarium head blight (scab) and drought. Read more at http://bit.ly/e1PIUr.
- U.S. Farmers & Ranchers Alliance Formed. Most of the leading national farmer- and rancher-led agricultural organizations, including the National Association of Wheat Growers, have joined the U.S. Farmers & Ranchers Alliance (USFRA) with the goal of coordinating outreach efforts to the consuming public. USFRA Chairman Bob Stallman, who is also president of the American Farm Bureau Federation, said, “The sun rises today on a new, collaborative and coordinated effort by many segments of production agriculture to tell our great story as never before.” Read more at http://www.usfraonline.org/.
- Best Wishes to Cheryl Tuck, information specialist and business manager with the Montana Wheat and Barley Committee, who will retire Dec. 15 after many years of cheerful service to Montana farmers.
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